Summit Hotel Focuses on Strategic Acquisitions

8/24/2011 | By Carisa Chappell

Summit Hotel Focuses on Strategic Acquisitions
Since going public in February 2011, Summit Hotel Properties, Inc. (NYSE: INN) has been meticulously acquiring premium-branded and upper mid-scale hotels one by one.

Rather than going after whole portfolios, Summit prefers to handpick each property it targets and make acquisitions gradually, according to Dan Boyum, head of investor relations at Summit. The company has acquired five hotels since the initial public offering (IPO) six months ago.

"We don't buy undesirable properties," Boyum said. "When you buy a portfolio, you are taking a few dogs with that."

The Summit REIT was formed to continue and expand the investment business of its privately held predecessor, Summit Hotel Properties LLC. With 70 hotels in a portfolio covering 19 states, Summit has a total of 7,100 guest rooms. The bulk of Summit's hotels operate under premium franchise brands owned by Marriott International, Hilton Worldwide and an affiliate of Hyatt Hotels Corporation.

Four hotels were acquired during the second quarter, including: a Homewood Suites asset in Ridgeland, Miss., a Staybridge Suites property in Glendale, Colo., and a Holiday Inn and a Hilton Garden Inn in Duluth, Ga. The fifth acquisition, a Courtyard by Marriott property in El Paso, Tex. was acquired in the third quarter.

"We kind of do a bottoms-up, where we're not really tied to one particular area," Boyum said.

Additionally, the company likes to own hotels in close geographic areas for the sake of efficiency and management. The newly acquired Courtyard site in El Paso, for example, is next door to a Summit-owned Hampton Inn and Suites.

In addition to acquiring hotels, Summit also recently converted 11 properties from the Choice Hotels International franchise to new brands. This was done as the result of Choice Hotels terminating its franchise agreements for those hotels.

"While the rebranding of the former Choice hotels has impacted our FFO for the second quarter by approximately .04 cents per share, we believe the rebranded hotels are quickly regaining their visibility and footing within their respective markets," said Dan Hansen, Summit's president and CEO.

Although Summit would like to acquire more properties, Boyum said that it depends on the availability of credit and maintaining the company's target of borrowing no more than six times the company's earnings before interest, taxes, depreciation and amortization (EBITDA). "We have always been a conservatively leveraged company and don't want to stray from that," he said.

In the second quarter, Summit increased its revenues by 7.6 percent from the previous year, up to $38.6 million. However, Boyum admits that it's not the best of times in the industry.

"During bad times like now, we buy properties rather than build, do renovations to improve our properties and selectively start looking for acquisitions," he said.